N.Y. Uniform Commercial Code Law § 4-406: Customer's Duty to Discover and Report Unauthorized Signature or Alteration

Section 4--406. Customer's Duty to Discover and Report Unauthorized

Signature or Alteration.

(1) When a bank sends to its customer a statement of account

accompanied by items paid in good faith in support of the debit entries

or holds the statement and items pursuant to a request or instructions

of its customer or otherwise in a reasonable manner makes the statement

and items available to the customer, the customer must exercise

reasonable care and promptness to examine the statement and items to

discover his unauthorized signature or any alteration on an item and

must notify the bank promptly after discovery thereof.

(2) If the bank establishes that the customer failed with respect to

an item to comply with the duties imposed on the customer by subsection

(1) the customer is precluded from asserting against the bank

(a) his unauthorized signature or any alteration on the item if

the bank also establishes that it suffered a loss by reason

of such failure; and

(b) an unauthorized signature or alteration by the same wrongdoer

on any other item paid in good faith by the bank after the

first item and statement was available to the customer for a

reasonable period not exceeding fourteen calendar days and

before the bank receives notification from the customer of

any such unauthorized signature or alteration.

(3) The preclusion under subsection (2) does not apply if the customer

establishes lack of ordinary care on the part of the bank in paying the

item(s).

(4) Without regard to care or lack of care of either the customer or

the bank a customer who does not within one year from the time the

statement and items are made available to the customer (subsection (1))

discover and report his unauthorized signature or any alteration on the

face or back of the item or does not within three years from that time

discover and report any unauthorized indorsement is precluded from

asserting against the bank such unauthorized signature or indorsement or

such alteration.

(5) If under this section a payor bank has a valid defense against a

claim of a customer upon or resulting from payment of an item and waives

or fails upon request to assert the defense the bank may not assert

against any collecting bank or other prior party presenting or

transferring the item a claim based upon the unauthorized signature or

alteration giving rise to the customer's claim.